Dec 3, 2022·edited Dec 3, 2022Liked by Lyle McKeany
Thanks for writing this, Lyle! I know a minimal amount about this space but have a good friend that’s in this space from whom I take all my cues. I have mostly BTC (small amount) on Coinbase and he’s warned me of the risks of having it on an exchange instead of self-custody, but I was relieved to see their CFO come out and affirm that Coinbase holds assets 1:1 and makes its money primarily on the transactions, which is obviously not what FTX was doing. I agree with all your points from what I understand and think the decentralization is a great feature that will ultimately be a benefit to help offset the wild control of the central banking system. Cheers brother!
You should check out the Coinbase Wallet. They make it relatively easy to set up and then you know your assets are safe and won’t have to trust Coinbase’s word.
I don’t know much about crypto, but I found a lot of value in this piece, largely because you made a distinction between centralized exchanges and DeFi. Here’s why question: why did so many people opt for exchanges like FTX? I’m sure the Super Bowl ad helped, but I guess what I’m asking is what’s the value prop of the exchange?
Great question! There are a couple of reasons. Much cheaper fees, for one. You don’t have to custody your own assets, which means storing them in your own crypto wallet, which can be confusing and a bit of a pain (there are projects working on making this easier, though).
Another question. Last year, I saw a lot of TikToks advertising interest rates for crypto deposits that were, to put it gently, bonkers. I'm talking 100%, 200%, etc. I think I even saw one place offering 1,000% interest on crypto deposits. I'm assuming these offers were from exchanges. Wondering if those players have gone bust in this recent reckoning, and if FTX was one of those offering these rates?
Most of those probably weren’t centralized exchanges actually. A lot of early-stage DeFi products would do that to incentivize people to park their assets there. That’s all well and good until people move their money to a different, higher interest rate project and the price of the token on the original one plummets. So they basically need to be ponzi-ish with new people constantly buying into the project to keep things going up. Which is part of why people would shill them on TikTok and the like. We wrote a bit about this phenomenon here if you’re curious: https://invisiblecollege.substack.com/p/the-1-scam-in-crypto
Thanks for the explanation. Will check out the link. The ones I saw gave me that feeling like I was an idiot because I don’t have crypto and that I needed to buy crypto and park it there RIGHT NOW, or I’d miss my big chance. Of course, two seconds later, my more rational brain would kick in and say, that kind of ROI sounds too good to be true, and you know the old saying about that.
Anyway, as I’ve made perfectly clear, I’m no expert when it comes to crypto, but I’ve worked in tech long enough to have seen other bubbles burst. With any luck, this reality check will clear out the scammers so that the underlying tech has a chance to develop and find use cases.
As a person who knows almost nothing about crypto, I found this post incredibly useful! I’ve been hearing all these names in the news lately, but didn’t quite understand what happened. Thank you for taking the time to share your expertise with us!
I share those values, Lyle, and appreciate this post. 👍
Thanks for writing this, Lyle! I know a minimal amount about this space but have a good friend that’s in this space from whom I take all my cues. I have mostly BTC (small amount) on Coinbase and he’s warned me of the risks of having it on an exchange instead of self-custody, but I was relieved to see their CFO come out and affirm that Coinbase holds assets 1:1 and makes its money primarily on the transactions, which is obviously not what FTX was doing. I agree with all your points from what I understand and think the decentralization is a great feature that will ultimately be a benefit to help offset the wild control of the central banking system. Cheers brother!
Thanks, Jarrod!
You should check out the Coinbase Wallet. They make it relatively easy to set up and then you know your assets are safe and won’t have to trust Coinbase’s word.
I don’t know much about crypto, but I found a lot of value in this piece, largely because you made a distinction between centralized exchanges and DeFi. Here’s why question: why did so many people opt for exchanges like FTX? I’m sure the Super Bowl ad helped, but I guess what I’m asking is what’s the value prop of the exchange?
Great question! There are a couple of reasons. Much cheaper fees, for one. You don’t have to custody your own assets, which means storing them in your own crypto wallet, which can be confusing and a bit of a pain (there are projects working on making this easier, though).
Thanks, that makes sense!
Another question. Last year, I saw a lot of TikToks advertising interest rates for crypto deposits that were, to put it gently, bonkers. I'm talking 100%, 200%, etc. I think I even saw one place offering 1,000% interest on crypto deposits. I'm assuming these offers were from exchanges. Wondering if those players have gone bust in this recent reckoning, and if FTX was one of those offering these rates?
Most of those probably weren’t centralized exchanges actually. A lot of early-stage DeFi products would do that to incentivize people to park their assets there. That’s all well and good until people move their money to a different, higher interest rate project and the price of the token on the original one plummets. So they basically need to be ponzi-ish with new people constantly buying into the project to keep things going up. Which is part of why people would shill them on TikTok and the like. We wrote a bit about this phenomenon here if you’re curious: https://invisiblecollege.substack.com/p/the-1-scam-in-crypto
Thanks for the explanation. Will check out the link. The ones I saw gave me that feeling like I was an idiot because I don’t have crypto and that I needed to buy crypto and park it there RIGHT NOW, or I’d miss my big chance. Of course, two seconds later, my more rational brain would kick in and say, that kind of ROI sounds too good to be true, and you know the old saying about that.
Anyway, as I’ve made perfectly clear, I’m no expert when it comes to crypto, but I’ve worked in tech long enough to have seen other bubbles burst. With any luck, this reality check will clear out the scammers so that the underlying tech has a chance to develop and find use cases.
Yeah, I totally agree. As painful as it has been, it’s great to flush out the riff-raff.
As a person who knows almost nothing about crypto, I found this post incredibly useful! I’ve been hearing all these names in the news lately, but didn’t quite understand what happened. Thank you for taking the time to share your expertise with us!
Thanks, Jillian! Glad to hear it was a useful departure from my typical writing